BADM 2311 Final exam
The Six-Step Financial Planning Process is 3
Implement financial plans and strategies.
Property insurance
Insurance coverage that protects real and personal property from catastrophic losses caused by a variety of perils, such as fire, theft, vandalism, and windstorms
What are three features of an annuity and how would each one benefit you and/or you beneficiary?
Interest is earned at taxed differed rate-benefit is that it is tax differed Possibility of a fixed monthly income -Fixed income is reliable If the person that owns the annuity dies the benefits may be payed out to a beneficiary- Your family will not be left with nothing
Explain the difference in risk, return and what they represent.
Investing in a bond is buying a company's debt Buying a stock is buying into the equity and can be sold fast buying stock is more risky because the company must fulfill their obligations before paying common stock bonds provide current income in form of interest Bonds are low return Stocks returns can be high return Bonds helps diversify portfolio
Why should you diversify your investment portfolio?
It spreads the risk...That way if the market crashes you will have other investments that will not crash like some of the higher risk investments. It lets you not have all your eggs in one basket.
In which of the following types of investment is the most liquidity risk?
Land
What are three examples or of financial risk?
Liquidity, debt coverage, inability to convert accounts receivable
What are three things learned from loans lecture?
Pay of loans faster will safe more money make sure not to neglect savings Make sure to budget for loans
The Six-Step Financial Planning Process is 4
Periodically develop and implement budgets to monitor and control progress toward goals
A mutual fund's price per share will increase if its underlying holdings increase in value.
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A person with a significant amount of investment income would have a high probability of needing to make estimated tax payments.
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A potential estate planning problem is improper distribution of assets.
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A round lot consists of multiples of 100 shares of stock. Correct!
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A short-term capital gain would be taxed at the same rate as your salary.
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A systematic investment routine involves investing similar sums in regular intervals
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A technology fund is an example of a sector fund.
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A will is revoked if a second legitimate will is created.
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A will may be invalid if the testator was under undue influence of another person.
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ATM transactions require the use of a PIN.
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All contributions to Roth 401(k) plans are made in after-tax dollars.
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All mutual funds have management fees.
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An inflation hedge is an asset that increases in value at a rate equal to or greater than the rate of inflation.
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An investment is acceptable if the expected rate of return is greater than the desired rate of return
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Annual term insurance premiums increase as you get older while whole life insurance premiums remain constant.
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As a homeowner, the federal government may allow you to deduct interest expenses and taxes paid on the property.
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Changes in the value of securities due to social, political, or economic factors are referred to as market risk.
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Collateral is an item of value used to secure the principal portion of a loan.
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College costs have been escalating faster than the overall rate of inflation.
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Common stock generally allows the stockholder an equal vote in electing the management of the corporation.
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Condominiums are generally less costly than single-family, detached homes.
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Convertible securities provide the fixed income features of bonds while offering the price appreciation potential of common stock.
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Credit card users can often avoid finance charges entirely by paying their total balances by the stated due date.
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Credit unions typically pay higher rates of return on savings than banks and savings and loan associations.
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Current consumption affects future consumption.
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Debit and ATM card transactions are linked to your checking account.
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Depreciation is not an important consideration since it is not a recurring out-of-pocket cost.
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Earnest money deposits and contingency clauses are usually specified in the real estate sales contract.
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Earnings on 529 college savings plans can be tax free when used for qualifying college education expenses.
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Even the best retirement plan needs to be reviewed every few years.
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First-time homebuyers can withdraw up to $10,000 from an IRA without penalty before age 59 1/2.
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For most workers, participation in the social security system is mandatory.
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From a financial planning perspective when considering a consumer loan, you should ask yourself how the purchase fits into long-term financial plans.
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Gasoline is a variable cost of automobile ownership.
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Gift giving can reduce estate tax liability.
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Group life insurance is often provided as a fringe benefit by employers.
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Guaranteed renewable term insurance allows you to renew the policy for another term without qualifying medically.
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If a mutual fund provides for automatic reinvestment, the reinvested dividends will not be taxed until the shares are redeemed.
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If lenders specify a loan-to-value ratio of 80 percent, then a buyer must make a 20% down payment on the purchase of a home.
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If your bank states that it compounds monthly, the effective interest rate (APY) will be greater than the nominal interest rate.
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Intestacy results from dying without a valid will.
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Jewelry, furniture, and computers are examples of personal property.
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John and Mary Smith own 500 shares of ABE stock. After the company pays a 6 percent stock dividend, John and Mary will own 530 shares of ABE stock
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Less rapid depreciation is one advantage of buying a used car rather than a new car.
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Life insurance needs change dramatically over one's lifetime.
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Loans against a life insurance policy do not have to be paid back.
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Most people are too conservative when investing their retirement funds.
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Mutual funds may be classified by the types of securities they purchase.
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Mutual funds provide professional management and diversification that individual investors - especially those with limited resources - can rarely obtain on their own.
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One could expect to earn a higher rate of interest on a certificate of deposit than on a checking account.
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One should typically name both primary and contingent beneficiaries for life insurance policies.
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Open account credit is a form of credit extended to a consumer in advance of any transaction.
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Personal financial planning involves translating financial goals into action plans.
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Rebate credit cards work best for those who use the rebates, charge a lot, and do not carry high monthly balances.
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Saving is the preferred way to provide for financial emergencies.
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Secured credit cards require that the cardholder put up collateral in order to get the card.
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Social Security represents about 38% of total retiree income.
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Social security benefits are often available resources to the family after the death of a family member.
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Spreading risk among a large number of people is a major principle of insurance.
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Standard of living is defined as the necessities, comforts, and luxuries desired by an individual or family.
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Tax credits are dollar-for-dollar reductions in taxes due.
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Term insurance is generally the most economical form of life insurance for young families. Correct!
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The Medicare portion of the FICA tax is paid on 100% of earnings.
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The Veterans Administration guarantees mortgage loans given to qualified veterans.
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The basic purpose of insurance is to protect you from the financial consequences of losing assets or income due to accident, illness, or death.
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The cost of a title search and title insurance are typically part of the closing costs on a housing transaction.
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The current trend in retirement plans is toward contributory plans.
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The federal government regulates securities markets through the Securities and Exchange Commission.
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The federal personal income tax is a progressive tax.
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The fees on annuities tend to be high compared to mutual funds.
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The greatest fixed cost involved with owning an automobile is usually the monthly loan payments.
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The heart of sound financial planning is improved standard of living.
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The need for additional life insurance can be determined by looking at the difference between available resources and family monetary needs.
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The needs analysis method is the most accurate approach to determining the proper amount of life insurance to buy.
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The purpose of a credit report is to evaluate the kind of risk you pose to the lender.
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The risk-free rate of return is often measured by the return on U.S. Treasury bills.
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The student loans with the best loan terms are the Stafford and Perkins loans.
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To make a legally binding offer on a car, you must sign a sales contract that specifies the offering price and all the conditions of your offer.
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To the issuing company, bonds are liabilities
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Utility refers to the amount of satisfaction a person gets from buying certain items.
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When comparing two installment loans with the same principal and APR, the loan with the longer maturity will have the lower monthly payment and the higher total costs.
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When the income and expense statement indicates a cash surplus, this may be used to increase net worth by increasing assets or decreasing liabilities.
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When you take out a loan against the cash value of your life insurance policy, you're really borrowing from yourself.
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With open-end mutual funds, investors cannot lose more than they invested.
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Your goals tend to set the tone for your investment program, and they play a major role in determining how conservative or aggressive you're likely to be in making investment decisions.
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Your personal value system will shape your attitude toward money and wealth accumulation. Correct!
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The Six-Step Financial Planning Process is 5
Use financial statements to evaluate results of plans and budgets, taking corrective action as required.
One's marginal tax rate is typically lower than one's average tax rate.
F
Owning common stock represents a debt investment.
F
Prices are rising in bear markets, indicating economic optimism
F
Probate property includes only real property.
F
Property held in different states does not complicate the estate planning process.
F
Publicly traded issues are only available to qualified investors.
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Purchasing power risk is of most concern during economic recession.
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Saving accounts are sometimes referred to as demand deposits.
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Social security benefits alone can usually fund a comfortable retirement.
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Stock dividends are taxed at long-term capital gains rates.
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The Consumer Price Index (CPI) is the amount of goods and services each dollar buys at a given point in time.
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The best retirement investment is fixed income securities such as CDs and Treasury notes.
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The equity in your home is the difference between the loan balance and the purchase price.
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The income and expense statement looks forward in time, while a budget is backward looking.
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The key to creditworthiness is to keep your debt safety ratio as high as possible.
F
The largest single investment you will undertake in your lifetime will probably be the purchase of an automobile.
F
The minimum denomination for Treasury bills is now $1,000.
F
The returns on term life insurance policies receive favorable tax treatment.
F
The two main areas of estate planning are asset planning and probate planning.
F
The waiver-of-premium benefit excuses premium payment while the insured is experiencing short-term illness.
F
The yields on municipal bonds are usually higher than the returns available from fully taxable issues.
F
There is no limit on the amount of social security tax withheld annually.
F
Using credit is the ideal way to provide for financial emergencies.
F
When comparing two installment loans with the same principal and APR, the loan with the shorter maturity will have the lower monthly payment and the lower total costs.
F
When you stop making premium payments on a whole life policy, the policy's cash value is forfeited.
F
Whole life policies typically provide a high investment rate of return.
F
You are covered through the SIPC for losses you incur due to the inept advice you receive from a brokerage firm.
F
A will is a legal document outlining the plan for
disposition of your assets.
Money market mutual funds are insured up to $250,000 by the FDIC if purchased at an insured bank.
false because its a mutual fund
WOW airlines ran out of money in the middle of the week. What kind of risk is this?
financial risk
What are three factors that may affect your house insurance cost?
location of home type of structure credit score
which goal has "Last resort assets"
long term goal
What are three things we should avoid purchasing with credit
non durable goods impulse decisions to meet basic living expenses
What is the most expensive loan?
non-durable loans or to get loans to get by weekly
liability insurance
offers protection against the financial consequences that may arise from the insured's responsibility for property loss or personal injuries to others.
how would you describe revolving credit
they are lines of credit giving by banks for specific purposes usually with use of checks
Loans are available from term life insurance policies.
F
Compare and contrast revolving credit(lines of credit or credit cards) vs consumer loans. Give at least 3 attributes of each.
1 credit cards will tend to have higher interest rates 2. Can be used for emergency 3. Very convenient Consumer loans 1. Interest rates will be lower than credit card rates most of the time 2. Once its payed off there is no more credit unlike revolving credit 3. Used to pay for larger ticketed items rather than credit most of the time
What are three things that you should not use credit for?
1 non durable goods 2 impulse decisions 3 to meet basic living expenses
What are the three most important points or "big takeaways" from last weeks presentation on investing?
1 stay invested 2 stay diversified 3 do not get emotional
What are three reason to use credit as described in class?
1 to help to not pay for expensive items like cars and houses 2 helps with overwhelming emergency funds 3 convenience
What are three reasons why we use credit
1 to help to not pay for expensive items like cars and houses 2 helps with overwhelming emergency funds 3 convenience
What are the three big questions to ask before leasing a car?
1 will i drive over the dealership allowed amount of miles? 2 do i want to put the effort to take extra care of the dealerships car? 3 can I afford it?
If you purchase a $220,000 and make a 20% down payment, how much would 1 point cost at closing?
1,760
Seven Steps in Estate Planning
1. Assess your family situation and set estate planning goals 2. Gather comprehensive and accurate data 3. List all assets and determine the ownership and value of your estate. 4. Designate beneficiaries of your estate's assets 5. Estimate estate transfer costs 6. Formulate and implement your plan 7. Review the plan periodically and revise it as necessary.
What is the rule of 72 and if you are making 2% per year, approximately how many years does it take to double your money?
36
What are three retirement plans a company can provide to you?
401k Pension plans 403b
Low-load funds do not charge a commission upon initial purchase.
F
Market risk considers the possibility that the firm may fail.
F
Please describe the difference between a ROTH IRA and a traditional IRA.
A roth IRA is a retirement fund that when you make a deposit it is taxable then and when you take it out when you are eligible it is tax free. Traditional IRA is a retirement fund that is non taxed when you are depositing and is taxed when the amount is taking out when you are eligible
When should you start contributing to your retirement plan and why?
As soon as possbile, the longer the money is in the retirement account the more it will compound and make you money off the interest
Give one example of event risk for a company like what happened to Exxon.
BP oil spill
Minors can handle large sums of money and property.
F
Newly issued securities are sold to the public in the secondary market.
F
The Six-Step Financial Planning Process is 1
Define financial goals.
The Six-Step Financial Planning Process is 2
Develop financial plans and strategies to achieve goals.
529 Plans are the newest type of student loans.
F
A budget is a detailed statement of what income and expenses occurred over a past period.
F
A long-term capital gain is taxed at the same rate as ordinary income.
F
A real estate investment trust that invests only in mortgages is called an equity trust.
F
A savings account may be a useful tool in managing everyday household transactions.
F
All living trusts are revocable.
F
Approximately 50 percent of Americans prepare a detailed household budget.
F
Auto loans are an example of open account credit since you can add to the debt when you purchase another vehicle.
F
Average propensity to consume refers to how much of your money you plan to save in your financial plan.
F
Because no written contract is usually required, borrowing from friends and relatives is advisable.
F
ETFs often distribute large capital gains to their shareholders.
F
Estate planning usually occurs during the last ten years of a person's life.
F
Fixed automobile costs increase as the number of miles driven increase.
F
Generally speaking, the interest rates on credit cards are lower than any other form of credit.
F
Growth funds are mutual funds designed for short-term investing.
F
Household expenses usually increase after retirement.
F
If Wristwatch Arm Corporation (WAC) has assets of $10 million, liabilities of $5 million, and preferred stock of $1 million, its book value is $6 million.
F
If you are married, you can legally file a single tax return.
F
Index funds are actively managed.
F
Interest you earned on your savings account would be an entry on your personal balance sheet.
F
Investing is considered a short-term activity that involves the buying and selling of securities.
F
It is safe, and often required, to give your Social Security number as a form of identification when using a credit card.
F
It really makes little difference whether you start retirement savings at age 25 or at age 45.
F
What are three examples of business risk?
Financial risk, reputation risk, competitive risk
What are three things you can do to lower the cost of your healthcare insurance?
Get a plan that is through your employer Have a high deductible Try to be healthy, watch weight and don't smoke
What is HO-1, HO-2 and HO-4. Please give a description of each.
HO-1 is basic coverage like fire, theft, HO-2 a more broad for it includes more coverage like weight of ice or snow or sudden breaking of pipes HO-4 is renter it protects all of YOUR stuff
The Six-Step Financial Planning Process is 6
Redefine goals and revise plans and strategies as personal circumstances change.
Three formats of a consumer loan
Single payment, installment loans, Fixed or Variable rate loans
403(b) and 457 plans are similar to 401(k) plans, but they are for employees of public, non-profit organizations.
T
A balance sheet is like a photograph of your financial condition, while an income and expense statement is like a motion picture.
T
A budget is a detailed financial forecast.
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A codicil is a simple and convenient legal means of modifying a will.
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A debt safety ratio of 25% might be a signal of financial trouble ahead.
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A good rule to remember when considering the use of credit is that the product purchased on credit should outlive the amount of time it takes to pay it off.
T
A house and land are examples of real property.
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A lender will generally require private mortgage insurance (PMI) if the down payment is less than 20 percent.
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A life insurance policy's cash value may be collected by terminating the policy.
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A mutual fund prospectus is required to fully disclose all fund fees and expense
T
What was the most aggressive fund presented last week and why?
The most aggressive fund was the CIBR fund because most of its holdings where in one industry.
Why should you diversify your investment portfolio?
The reason you should diversify your portfolio is because it spreads the risk...Because when you diversify you are not longer investing in a single industry which allows you not to loose all of your investment if that industry declines.
Give three similarities and three differences between mutual funds and ETFs(Exchange Traded Funds).
Three differences: ETF's are traded like common stock, ETF's typically have lower expense ratios, Most ETF's are index tracking and mutual funds are typically not Three similarities: Diversified, Professional management, both are convenient
What is the difference between perils and hazards. Please give three examples of each.
a peril is something that can cause loss a hazard is something that makes the peril more likely to happen perils earthquake floods mudslides Hazards teen driving, having a house next to a beach, having a house in the tornado zon
You are an insured driver with USAA and you borrow your friends cars insured by Allstate. When you are driving back to your friends house to drop off the car you have a car accident. Which insurance company pays the liability in this accident?
allstate
Give one example of a market or systematic risk?
behavior of investors
Please name three types of business risk.
competitive risk financial risk reputation risk